2. Cash - presentation
• “Cash is the lifeblood of a
business”
– Cash v Profit
– “Mind the gap”
– Funding sources
– Investment readiness
• Q&A
3. Cash is the lifeblood of business
– Chelsea
announce
£67.7million
loss (By MirrorFootball,
31/01/12)
4. But at some stage profit (surplus) is required?
“UK Total Government Debt for
end FY 2012: £1.046 trillion”
5. Cash v Profit
• A profitable first £ £
year…
Turnover 150,000
Cost of sales 50% (75,000)
Gross Profit 75,000
Overheads
Wages (20,000)
Premises (5,000)
Other (10,000)
Depreciation (10,000)
(45,000)
Net profit 30,000
6. Cash v Profit
• But no cash… £ £
Fixed Assets (Note 1) 40,000
Debtors 30,000
Stock 15,000
Prepayments 5,000
50,000
Bank overdraft (60,000)
(10,000)
Net Assets 30,000
1. Plant and machinery, fixtures etc
7. Cash v Profit
• How?
£
Profit 30,000
Depreciation 10,000
40,000
Working capital (50,000)
(stock, debtors and prepayments)
Fixed asset expenditure (50,000)
Cash deficit (60,000)
8. Cash v profit
• Profit and loss shows profit generated in a period.
E.g.,
– Revenue recognised when earned (sale made)
– Costs recognised against revenue and/ or time
• Cash flow based on cash payments and receipts
9. Cash v Profit
• ‘Accounting concepts’ to give us
‘profit for the period’
– Depreciation
– Debtors
– Stock
– Prepayments
10. ‘Mind the gap’
• Understand difference b/w
cash and profit
• Understand ‘value’ of the
balance sheet
• Project forward
– Cash requirement?
11. Mind the gap
• Is £60k the worse
position?
• Timing is
everything…
12. Mind the gap
• The worse £
position? Opening cash 0
– Assume capital Fixed asset expenditure (60,000)
expenditure and
Stock (initial), say (30,000)
stock paid for in
advance of sales Wages, say 3 months (5,000)
– Say 3 months to Other costs, say 3 months (2,500)
get ‘set up’
Rent, prepayment (6,000)
– Rent prepayment
Cash deficit (103,500)
Note: VAT at 20% assumed on expenditure (exc wages)
13. Mind the Gap
• Identifying ‘cash requirement’
– Monthly profit and loss, cash flow and balance sheet
forecasts
– Do not forget about profit v cash
– Do not forget about tax (VAT and tax on profits)
14. Funding
• Match funding requirement to funds sought
– “Clearly, Northern Rock's reliance on wholesale
funding, and the 'borrow short, lend long' approach to
managing its business risks, were both huge risks.”
(http://openlearn.open.ac.uk/mod/oucontent/view.php?id=401804§ion=4.2)
• Funding types (general)
– Grant
– Debt (overdraft to term loans and mortgages)
– Equity
15. Funding
• Debt
– Interest and capital
– Term or repayable or demand
– Secured or unsecured
– Asset Finance
– Invoice Discounting
– Government initiatives to stimulate bank lending
• Enterprise Finance Guarantee Scheme, National Loan Guarantee
Scheme, “Funding for Lending” (part of £140bn)
– Bank lending to UK businesses falling…
16. Funding
• “It’s an equity proposition” – 2007/08 onwards
• Equity
– Share in risks and rewards/ Part owners
– “Family, Friends and Fools” through to Private Equity
– “Government” stimuli
• Business Angels – EIS/ SEIS
• Venture Capital – Business Growth Fund
– Virtual networks – e.g., Crowdcube
– Angel networks – SWAIN and GAIN
17. Grants
• Non-repayable finance
• Cornwall has grant funding – see hand-out
• Some national schemes “in funds”
• Not all businesses eligible
18. Investment ready
Understand
funding
Understand
options
your
available and
requirements
funders
requirements
19. Investment ready - general
• Business Case to the fore
– Business Plan and Financial Projections
– Team: ability to deliver
– Market research
– ‘Route to Market’
– Why you are going succeed (acknowledge risks as well?)
• Compliance and Legal
– VAT, PAYE/NI, Books and records
– IPR ownership etc.
20. Investment ready – a few specifics
• Debt
– Ability to repay
– Security
• Equity
– Value
– Exit route?
• Grant
– Eligibility
21. Summary
• A sustainable business delivers profit
– But profit does not equal cash
• To survive that business must be
adequately funded
– Understand financing requirements
and look to match with funding
• There is a ‘tax tale’ but that is for
another day…
– plus is carbon the future currency?
